Disability Income Insurance
Core concepts
Disability income replaces a portion of earned income when the insured cannot work. Candidates must know own-occupation vs. any-occupation definitions, total vs. partial/residual disability, elimination period, benefit period, and recurrent disability provisions.
Own-occupation pays if the insured cannot perform their own job - more favorable, usually short duration. Any-occupation pays only if unable to perform any job for which reasonably suited by education and experience. Residual benefits pay a proportional amount for partial income loss. Presumptive disability (e.g., loss of sight or limbs) pays without an elimination period.
Traps in questions
- Assuming own-occupation lasts forever - often limited to a stated period.
- Confusing elimination period with benefit period.
- Forgetting that benefits are usually tax-free if premiums were paid by the individual, but taxable if employer-paid.
- Overlooking recurrent disability rules: a relapse within a set period (often six months) continues the prior claim.
Rule of thumb
Coverage is limited to a percentage of income (often 60–70%) to preserve work incentive. Higher benefit, longer period, and shorter elimination mean higher premium.
Worked example
An insured earning $60,000 has a policy paying 60% ($36,000/year) with a 90-day elimination and five-year benefit. After a back injury, benefits begin on day 91 and can continue up to five years if disability persists.